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Investors that entered the hospital business about a decade ago are now looking for an exit.

Private equity continues to flee from hospitals in favor of less-costly and more efficient outpatient settings of care like home health and retail healthcare specialties like dermatology and vision care, according to Sarah Pringle of Buyouts, a HealthLeaders sister publication.

Capping this theme of investors that got into the hospital biz around the 2008-2010 timeframe and are now attempting to get out, Leonard Green is evaluating the sale of Prospect Medical, Buyouts writes. The buyout firm a few years back reportedly tapped Morgan Stanley to find a buyer for the for-profit hospital operator. Find out who's advising this time around.

It's too early to predict how the process will play out, but some interesting dynamics are at play.

One is that Prospect's hospital network spans California, Texas, and the New England region. Given the tough environment, according to at least one source Buyouts spoke with, a piecemeal sale is a more likely scenario. It's also possible transactions are done in some combination with a real estate investment trust (REIT) structure, this person said.

Of the transactions that have gotten done in recent years, many have been in the context of a real estate play.

For instance, Apollo has converted some of RCCH's assets into a REIT that Medical Properties Trust owns. And there's speculation that some of the assets inherited through RCCH's pending $5.6 billion deal for LifePoint Health may take on a REIT structure given the sponsor’s success with this strategy in the past.

Other PE firms with hospital assets growing increasingly long in the tooth have taken to an REIT structure. That includes Cerberus-owned Steward Health Care, which provided an exit for TPG when it bought Iasis Healthcare in 2017 for a reported $2 billion. Cerberus has owned Steward since 2010.

Meanwhile, for-profit operators Community Health Systems and Tenet Healthcare have been ridding themselves of struggling or non-core hospitals as they look to address their debt burdens.

Prospect, for its part, also provides care-management and administrative-support services through its medical-group unit. This piece of the company could be spun off in a separate and more highly pursued transaction, one source suggested.

New PE entrants in the sector have been scarce in recent years, even as existing sponsors in the space rethink their strategies. In fact, some eager hospital sellers have even tried to bring in Asian and European investors, the source told Buyouts.

With the shakeout in durable medical equipment, the opportunity to buy higher-risk companies at single-digit multiples of Ebitda may lure buyers back in.

This story was reprinted with permission from Buyouts, which is part of the Simplify Compliance family of brands along with HealthLeaders Media. To subscribe to Sarah Pringle’s free weekly e-letter, PE Hub Healthcare Wire, click here. To see all the products offered by Buyouts Insider, go here.